nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2021‒08‒23
ten papers chosen by
Karl Petrick
Western New England University

  1. Financial Instability and Income Inequality: why the connection Minsky-Piketty matters for Macroeconomics By Filippo Gusella; Anna Maria Variato
  2. Bank Seigniorage in a Monetary Production Economy By Biagio Bossone
  3. Economists' erroneous estimates of damages from climate change By Stephen Keen; Timothy M. Lenton; Antoine Godin; Devrim Yilmaz; Matheus Grasselli; Timothy J. Garrett
  4. Speculation: a political economy of technologies of imagination By Bear, Laura
  5. Paradox of Monetary Profit, Shortage of Money in Circulation & Financialisation By Javidanrad, Farzad
  6. On the Labor Theory of Value as the Basis for the Analysis of Economic Inequality in the Capitalist Economy By Yoshihara, Naoki
  7. Mr. Keynes and the “Classics”; A Suggested Reinterpretation By Gauti B. Eggertsson; Cosimo Petracchi
  8. The Lasting Effects of Early Childhood Education on Promoting the Skills and Social Mobility of Disadvantaged African Americans By Jorge Luis García; James J. Heckman; Victor Ronda
  9. The Ritual of Capitalization By Fix, Blair
  10. From Referrals to Suspensions: New Evidence on Racial Disparities in Exclusionary Discipline By Liu, Jing; Hayes, Michael S.; Gershenson, Seth

  1. By: Filippo Gusella; Anna Maria Variato
    Abstract: In recent years the names of Minsky and Piketty gained increasing notoriety to researchers because the two authors investigated issues of financial instability and income inequality, which represent both two unsolved macroeconomic problems of the new millennium, and evidence contradicting the long†run implications of mainstream macroeconomics. By combining these two names we set ourselves an ambitious goal, going beyond the technical aspects of the model presented in the paper. Indeed, not only we want to contribute directly to the debate meant at clarifying the controversial relationship between financial instability and income inequality; we also aim at addressing a broader issue which is the explanation of the reasons why a theoretical revolution in macroeconomics has not yet occurred, and why financial aspects still play a subordinate role to real factors in the explanation of growth and cycles. In this broader perspective Minsky and Piketty are assumed as extreme examples of the opposite poles of heterodoxy and orthodoxy. Both target and argumentative line of the contribution are quite unconventional, as usually financial instability and income inequality, are treated as separate if not independent issues of inquiry; and methodological reflection is no longer a customary explicit part of technical papers. We discuss possible reasons why these two circumstances happen. The theoretical framework proposed in this paper builds on Ferri (2016), who presents a class of demandled models in a medium†run time horizon. This class of models is not conventional too, though it belongs to “pedagogical models†, we consider especially relevant tool for macroeconomics. Among the different specifications investigated by the author, we select the nearest to possible comparison with Piketty (2014) and then we introduce corporate debt into the financial account of firms. Because of the non†linearity of the model, we explore its dynamic properties with numerical simulations. Such simulations are also performed to assess the parameters enabling to support the Financial Instability Hypothesis. Aiming at deepening the comprehension of robustness properties, we also consider analytic results from a linearized version of the model. Obviously, the criticism addressed to Piketty with respect to the definition and measurement of inequality can be extended to our model too, as we use the same expedient to check the evolution of inequality. This leads to emphasize the relevance of the issue of measurement as a critical one for future developments. Nevertheless, this does not impinge on the achievement of our purpose. Indeed, our analysis confirms the utility of pedagogical models. Furthermore, it underlines the need of a change of economic vision such that complexity comes as a substantial part of representation. In terms of future perspectives these considerations point out the need for macroeconomic epistemology to resume constructive dialectics: a mixture of plural narratives and foundations for new visions of economic policy. Those just proposed at the end of the paper differ from orthodox ones as they call for financial regulation, they underline qualitative aspects and heterogeneity; but such embryonal policy suggestions stem from the overall perspective described in the paper, a perspective rooted into Ferri’s notion of medium†run, and qualified by Minsky through an eclectic approach leading to networks of balance†sheets: two ways highly overlapping though not totally equivalent to represent the reality of and endogenously unstable capitalism lying at the edge of chaos.
    Keywords: Economic Inequality, Financial Instability Hypothesis, Endogenous Cycles
    JEL: B41 D31 E32
    Date: 2021
  2. By: Biagio Bossone
    Abstract: This article speaks to post-Keynesian economists and their fundamental vision of monetary production economies. It focuses on the role of commercial banks as creators of money in monetary production economies and studies the rent-extraction power of banks in the form of "seigniorage." The article examines how the relative size of banks in the payment system combines with their capacity to determine quantities and prices in the market for demand deposits and gives them the power to extract seigniorage from the economy; it clarifies the distinction between seigniorage originating from commercial bank money creation and profits derived from pure financial intermediation; and analyzes how seigniorage affects the economy’s price level and resource distribution. The article draws political-economy and economic-policy implications.
    Keywords: Commercial banks; Interest rate; Money creation; Prices; Resource distribution; Seigniorage
    JEL: E19 E20 E31 E40 E52 E58 E62 G21
    Date: 2021–08
  3. By: Stephen Keen; Timothy M. Lenton; Antoine Godin; Devrim Yilmaz; Matheus Grasselli; Timothy J. Garrett
    Abstract: Economists have predicted that damages from global warming will be as low as 2.1% of global economic production for a 3$^\circ$C rise in global average surface temperature, and 7.9% for a 6$^\circ$C rise. Such relatively trivial estimates of economic damages -- when these economists otherwise assume that human economic productivity will be an order of magnitude higher than today -- contrast strongly with predictions made by scientists of significantly reduced human habitability from climate change. Nonetheless, the coupled economic and climate models used to make such predictions have been influential in the international climate change debate and policy prescriptions. Here we review the empirical work done by economists and show that it severely underestimates damages from climate change by committing several methodological errors, including neglecting tipping points, and assuming that economic sectors not exposed to the weather are insulated from climate change. Most fundamentally, the influential Integrated Assessment Model DICE is shown to be incapable of generating an economic collapse, regardless of the level of damages. Given these flaws, economists' empirical estimates of economic damages from global warming should be rejected as unscientific, and models that have been calibrated to them, such as DICE, should not be used to evaluate economic risks from climate change, or in the development of policy to attenuate damages.
    Date: 2021–08
  4. By: Bear, Laura
    Abstract: This introduction explores how to build a critical analysis of post-crisis capitalism by moving beyond Marx, Foucault and Callon's approaches. This is crucially important because powerful technocratic institutions and the discipline of economics are attempting to regain legitimacy by adopting theories that mirror performativity, discursive, narrative and network concepts within the social sciences. To combat this we need to forge a new approach that returns our attention to questions of accumulation and inequality. It is with this in view that the articles in the special issue use the concept of speculation and explore it in real estate markets, infrastructure financing, oil and gold trading, ethical finance and gambling. Overall speculation is understood to be future-oriented affective, physical and intellectual labour that aims to accumulate capital for various ends. Control of the means of speculation is governed by the distribution of contracts and credit in society. And crucially the amount of surplus value extracted depends on calculations of risk based on the imagination of social differences. Social evaluations are at the core of the technologies of imagination used in speculation. Speculation is akin to practices of divination or magic because it aims to reveal a hidden order of human and non-human ethical powers that explain the past, present and future and make it possible to act. Importantly this means that racial, gendered, national and other imaginings of the social permeate acts of speculation. From our perspective, we can write a critical and post-colonial account of capitalism that addresses inequalities of race and nation scandalously omitted from Marx, Foucault and Callon's accounts of ‘the economic’.
    Keywords: speculation; capitalism; accumulation; post-coloniality; timescapes
    JEL: J1
    Date: 2020–02–18
  5. By: Javidanrad, Farzad (University of Warwick)
    Abstract: Over the last four decades, the term “financialisation” has entered economics terminologies to explain the development of capitalist economies in which: a) the rate of profit in the production sector is falling or narrowing relative to that in the financial sector b) profit seeking through financial speculation has grown rapidly among the household and the production sectors; c) public and private debt is rapidly accelerating and its ratio to GDP is increasing swiftly; d) there is an independent and accelerated growth of the financial sector compared to that of the real sector. This paper is a theoretical attempt to shed light on these features through the lens of the paradox of monetary profit and its manifestation in the capitalist economy, i.e. the shortage of money in circulation. The aim of this paper is to show how the paradox of monetary profit provides a theoretical framework to analyse the mechanism by which the capitalist economies move towards financialisation. This theoretical argument shows the connection between the shortage of money in circulation and financialisation. The core idea proposed in this paper is that financialisation is the direct result of the shortage of money in circulation, and that this shortage can be explained through the paradox of monetary profit.
    Keywords: Capitalism, Paradox of Monetary Profit, Financialisation, Monetary production Economy, Marx JEL Classification: B11 ; E11 ; P10
    Date: 2021
  6. By: Yoshihara, Naoki
    Abstract: In this paper, we have reviewed the labor theory of value as the basis for the analysis of economic inequality in the capitalist economy. According to the standard Marxian view, the system of labor values of individual commodities can serve as the center of gravity for long-term price fluctuations in the precapitalist economy with simple commodity-production, where no exploitative social relation emerges, while in the modern capitalist economy, the labor value system is replaced by the prices of production associated with an equal positive rate of profits as the center of gravity, in which exploitative relation between the capitalist and the working classes is a generic and persistent feature of economic inequality. Some of the literature such as Morishima (1973, 1974) criticized this view by showing that the labor values of individual commodities are no longer well-defined if the capitalist economy has joint production. Given these arguments, this paper firstly shows that the system of individual labor values can be still well-defined in the capitalist economy with joint production whenever the set of available production techniques is all-productive. Secondly, this paper shows that it is generally impossible to verify that the labor-value pricing serves as the center of gravity for price fluctuations in precapitalist economies characterized by the full development of simple commodity-production.
    Keywords: UE-Exploitation, The Labor Theory of Value, Prices of Production
    JEL: D63 D51
    Date: 2021–08
  7. By: Gauti B. Eggertsson; Cosimo Petracchi
    Abstract: This paper revisits and proposes a resolution to an empirical and theoretical controversy between Keynes and the “classics” (or monetarists). The controversy dates to Keynes’s General Theory (1936)—most famously formalized in Hicks’s (1937) classic Econometrica article, in which the IS-LM model is first formally stated. We first replicate empirical tests formulated in the late 1960s and ’70s and show that more recent data have more statistical power and resolve the empirical debate in favor of the Keynesians, at least according to the criteria of the literature at that time. We then show, using a simple dynamic stochastic general equilibrium (DSGE) model, that the empirical tests suffer from the Lucas (1976) critique, as the conclusion fundamentally depends upon the assumed policy regime. Nevertheless, we argue, this new empirical result is useful: it provides evidence for the existence of a “Keynesian policy regime” according to which traditional monetary expansion loses its impact in the absence of a policy regime change, in the sense of Sargent (1982).
    JEL: B0 B1 B22 E0 E12 E13 E4 E5 E50 E51 E52
    Date: 2021–08
  8. By: Jorge Luis García; James J. Heckman; Victor Ronda
    Abstract: This paper demonstrates multiple beneficial impacts of a program promoting intergenerational mobility for disadvantaged African-American children and their children. The program improves outcomes of the first-generation treatment group across the life cycle, which translates into better family environments for the second generation leading to positive intergenerational gains. There are long-lasting beneficial program effects on cognition through age 54, contradicting claims of fadeout that have dominated popular discussions of early childhood programs. Children of the first-generation treatment group have higher levels of education and employment, lower levels of criminal activity, and better health than children of the first-generation control group.
    JEL: C93 H43 I28 J13
    Date: 2021–07
  9. By: Fix, Blair (York University)
    Abstract: For more than a century, political economists have sought to understand the nature of capital. The prevailing wisdom is that there must be something ‘real’ — some productive capacity — that underpins capitalized values. This thinking, I argue, is a mistake. Building on Jonathan Nitzan and Shimshon Bichler’s theory of capital as power, I argue that capitalization is an ideology. It is a quantitative ritual for converting earnings into present value. Although the ritual is arbitrary, it gives rise to astonishing empirical regularities, reviewed here.
    Date: 2021–08–14
  10. By: Liu, Jing (University of Texas at Austin); Hayes, Michael S. (Rutgers University); Gershenson, Seth (American University)
    Abstract: We use novel data on disciplinary referrals, including those that do not lead to suspensions, to better understand the origins of racial disparities in exclusionary discipline. We find significant differences between Black and white students in both referral rates and the rate at which referrals convert to suspensions. An infraction fixed-effects research design that compares the disciplinary outcomes of white and non-white students who were involved in the same multi-student incident identifies systematic racial biases in sentencing decisions. On both the intensive and extensive margins, minoritized students receive harsher sentences than their white co-conspirators. This result is driven by high school infractions and applies to all infraction types. Reducing racial disparities in exclusionary discipline will require addressing underlying gaps in disciplinary referrals and the systematic biases that appear in the adjudication process.
    Keywords: exclusionary discipline, intentional discrimination, office referrals
    JEL: I2 J7
    Date: 2021–07

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